Exploring auditor independence:an interpretive approach

Mohammad HudaibEssex Business School, University of Essex, Colchester, UK, and

Roszaini HaniffaBradford University School of Management, Bradford, UK

Abstract

Purpose – The purpose of this paper is to explore the construction of the meanings of auditorindependence (AI) in an oil-rich autocratic state with an ideology straddling liberal market capitalismand Shari’ah (Islamic teachings).

Design/methodology/approach – The concept of AI was explored using Blumer’s interactionistapproach or the Chicago School of Symbolic Interactionism (CSSI). Multiple methods were adopted incollecting and interpreting data: document analysis, personal professional experience, observation andinterviews with auditors in two audit firms in Saudi Arabia.

Findings – Using discourse analysis, the paper demonstrates that auditors construct the meanings ofindependence in appearance and in fact through their social interactions at three levels: micro(personal self-reflexivity through ethical reasoning and reputation of individual auditor); meso(organisational culture through range of commercial activities and image management) and macro(through political, de jure, and socio-economic structure).

Originality/value – The paper contributes to the auditing literature by providing insights into theconstruction of the meaning of AI in a context different from the dominant Anglo-American discourse,as well as transition and emerging economies discourse. The paper also contributes to the CSSIresearch methodology by extending it to consider interactions not only within an organisationalcontext, but also within the context of a country.

Keywords Auditing, Ethics, Religion, Saudi Arabia

Paper type Research paper

IntroductionThe concept of auditor independence has a long history and still remains a contentiousconcept today. In the early twentieth century, the concept of independence wasassociated with correct character and state of mind of the accountant throughexhortations of duty and loyalty[1]. Hence, independence was assumed to meanintegrity, honesty, and objectivity, including freedom from the control of those whoserecords are being reviewed. Carey and Doherty (1966, p. 39) addressed the concept as“. . . an attitude of mind, much deeper than the surface display of visible standards.”Discussion on auditor independence then evolves around two forms: “independence infact” and “independence in appearance”. The former requires auditors to form andexpress an opinion in the audit report as a disinterested and expert observer,uninfluenced by personal bias during the audit engagement (Arens et al., 2002), while

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The authors gratefully acknowledge the helpful comments and suggestions of the anonymousreviewers and the Editor (Professor Lee Parker).

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Received 4 January 2005Revised 20 May 2007

Accepted 20 August 2008

Accounting, Auditing &Accountability Journal

Vol. 22 No. 2, 2009pp. 221-246

q Emerald Group Publishing Limited0951-3574

DOI 10.1108/09513570910933951

the latter expects auditors to avoid situations that might cause others to conclude thatthey are not maintaining an unbiased, objective attitude of mind (Porter et al., 2003).

Because of the intangibility of the concept of auditor independence as well aschange in the work environment[2] auditor independence which was once consideredas a moral-ethical position has now been largely conceived as an object that can beregulated (or self-regulated) through standards promulgated in codes of ethics and/orgovernment regulation, and checked on and verified through reviews (Gendron et al.,2006). Despite the effort of professional bodies in developed countries in addressing thevarious threats and safeguards to independence via various codes (e.g. the ProfessionalCode of Conduct (US), the Members’ Handbook (UK) and the Code of Ethics forProfessional Accountants (IFAC)) and regulations, they are still susceptible tocorporate scandals. Yet, these codes and regulations are embraced by many developingcountries, including those undergoing transition from centrally planned to marketeconomies, such as in Central and Eastern Europe and China, as part of theglobalisation process.

A large volume of research on auditor independence concentrates on exploringperceptions of interested parties on auditor-client relationships[3] based on threats andsafeguards in the various codes (see for example Knapp (1985), on the USA; D’Silva(1992), on the UK; Gul and Tsui (1992), on Hong Kong; Teoh and Lim (1996), onMalaysia; Gorman and Ansong (1998), on Canada) using the positivist approach.Although the results of such studies inform us of the perceptions of various groups,they fail to consider many other factors within the context of the countries examined,such as the political and socio-economic structure, organisational culture and societaland individual values that may have shaped the subjects’ perceptions (Puxty, 1993;Puxty et al., 1997) on situations that may or may not impair auditor independence.

Understanding the context is important because auditor independence is not only atechnical concept, but also a cognitive and cultural concept (Wolnizer, 1987).Context-based studies in auditing are now receiving more attention. Power (2003)provided a critical review of contextual studies related to the role of auditing andproduction of legitimacy around four main themes: the audit process and formalstructure (Dirsmith and McAllister, 1982; Cushing and Loebbecke, 1986; Dirsmith andHaskins, 1991; Carpenter and Dirsmith, 1993; Francis, 1994); auditing as a business(Humphrey and Moizer, 1990; McNair, 1991; Fischer, 1996; Jeppesen, 1998; Power,2000); working papers and image management (Collins, 1981; Pentland, 1993); and newaudits (Power, 1996; Radcliffe, 1998, 1999). Similarly, the emerging interest intransition economies has resulted in increased attention in country context-basedstudies (see Hao (1999), on China; Sucher and Bychkova (2001), on Russia; Sucher andKosmala-MacLullich (2004), on the Czech Republic; Kosmala (2007), on Poland and theCzech Republic).

Despite the growth in the auditing literature on context-based studies, there hasbeen little effort in understanding how the “meaning” of an auditing concept such asauditor independence is constructed in a context different from the Anglo-Americanmodel (democratic, predominantly capitalist, stronger tendency to protectshareholders, influential professional accounting bodies, reliance on terms such as“true and fair” based on considerations of economic substance over and above legalform), continental European model (stronger tendency to protect creditors, strongerreliance upon government with small input from the accounting profession, dominance

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of tax rules), transitional economies model (those experiencing change in politicalideology and economic system such as in the Central and European region, Russia andChina), and other developing economies model such as in Malaysia and Singapore(semi-democratic, dominance of both foreign capitalist and local capital elites, strongergovernment intervention with large input from international bodies, semi-strongcapital markets).

Hence, this paper attempts to address the gap in the literature by investigating howthe meaning of auditor independence is constructed in the context of autocraticoil-based economies with strong state control and traditional/familial culturestraddling liberal market capitalism and Islamic ideology, such as in the ArabianGulf States[4], using the interpretive approach[5]. We are particularly interested inexploring how auditors articulate the notion of auditor independence in the context oftheir social interactions in such an environment, using Saudi Arabia as our case study.Saudi Arabia was selected because it shares similar characteristics with itscounterparts in the Arabian Gulf region, namely, autocratic political structure with allsocio-economic institutions under the leadership of certain families selected by theruling family; oil-based economy; and common societal values. However, it is alsorelatively unique as it has a fairly different system of religious involvement in politicaland socio-economic affairs and is recognised as one of the most corrupted amongst theArabian Gulf States[6], making it an interesting case study in its own right.

Since we are interested in understanding and explaining the social world primarilyfrom the point of view of the actors directly involved in the social process (Burrell andMorgan, 1979), we adopted an interpretive approach based on the Chicago School ofSymbolic Interactionism (CSSI) to study the phenomenon, as it offers the prospect ofreflecting some of the complexity and richness of the environments within whichauditing is being practised (Parker and Roffey, 1997). One of the researchers had theopportunity to interview, observe and interact with members of two audit firms for atotal of 12 days to build an overall understanding of what influences theirinterpretations for the construct of the meanings of auditor independence in theireveryday life. We also undertook document analysis of various texts to understand andinterpret the social, historical and cultural circumstances.

Our analysis indicates that auditors in Saudi Arabia construct their meanings ofauditor independence through their social interactions at three levels: micro (personalself-reflexivity), meso (organisational culture), and macro (political and socio-economicstructure). At the micro level, we found “independence in fact” to be associated withethical and/or religious reasoning as well as the reputation of the individual auditor as“man of honour”, especially the partner(s). At the meso or organisational level,“independence in appearance” is associated with image management and level ofcommercial activities. At the macro or country level, the political, ideological and legalsystem, economic and business structure and societal values within the environmentaffect various notions of independence and consequently, the meaning of AI. Ouranalysis further revealed tension between two groups of practitioners; Islamistpractitioners who would like to see the Shari’ah concept of independence in all spheresof life, including business and the profession vs the more powerful secular practitionerswho embraced capitalism and see religion as hindrance to progress.

The remainder of the paper is organised as follows. In the next section, we explainour theoretical framework based on the premises of CSSI. The following section

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describes our research method, followed by discussion of the analysis in the nextsection. The last section presents our conclusions and implications.

Theoretical frameworkAuditors, as individuals, groups and sub-groups, through their interactions, constructmeanings based on their understanding, experience and interpretation of theirsurroundings and actions at various levels. Hence, an interpretive approach mayprovide the necessary framework to investigate how the meaning of auditorindependence is constructed in Saudi Arabia, and if the constructs are indeed differentfrom the dominant Anglo-American discourse and its implications on the auditprofession.

Interpretive (or natural) approaches primarily focus on people’s perceptions ofreality and on individual meanings (Hopper and Powell, 1985; Hopper et al., 1987), andare rooted in hermeneutics (Puxty, 1993) and the verstehen tradition in sociology(Schwandt, 1994). The approaches include grounded theory; ethnomethodology, whichfocuses particularly on the everyday social practices of actors and how they choose todo what they do (Chua, 1988); cognitive anthropology, which focuses on theindividual’s communicative competence within a particular culture (Jonsson andMacintosh, 1997); and symbolic interactionism, which pays special attention to theconcepts and symbols that actors use to conduct their social life[7].

The CSSI is particularly appropriate in exploring how various groups in society acttowards their world, their interpretation of what confronts them, and how theyorganise their actions on the basis of their interpretation, or in short, the livedmeanings of the concept of auditor independence to auditors. CSSI also recognises thatthe meaning attached to a particular concept is dynamic and can only be understood inits context, and therefore it gives substantial attention to the social, historical andcultural circumstances. There are three premises to CSSI: members of society acttowards things according to their perceptions (meanings) of the phenomenon; theperceptions are formed based on language (symbols) in their social interactions; andtheir perceptions and actions are modified and handled through an interpretive processwhen dealing with the phenomenon (Blumer, 1969). In other words, CSSI recognisesthat society is not a homogeneous entity and assumes that understanding of societyrequires understanding of the individuals making it up and vice versa (Meltzer et al.,1975). According to Blumer (1969), CSSI recognises people as self-reflexive beings andtheir behaviours are not only driven by forces within themselves (e.g. instincts, drives,needs, etc.) or by external forces infringing upon them (e.g. political, social or economicsystem, etc.), but also what lies in between. Hence, CSSI sees meanings as socialproducts derived from social interactions, i.e. the meaning of things for each individualis formed in tandem with the context of his/her social interaction at various levels.

Three important concepts in CSSI include social interaction, joint action anddifferential degree of power (Blumer, 1969). Based on the process of social interactions,one learns to fit one’s own conduct to be in line with others who share the same worldview as a collective voice or by adjusting one’s conduct to fit with accepted norms. Forinstance, auditors often have their own pre-conceived opinions regarding variousauditor-client relationships. When he/she encounters a new situation or rule, he/shewill redefine his/her opinion based on interactions with others, e.g. other auditors,regulators, clients, etc., to fit his/her actions with others. Joint action represents the

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collective conduct of diverse participants in the negotiation process when a newsituation arises. For example, auditors and their professional colleagues, through theirnegotiation process, can take joint action to accept or reject new rules or recommendedpractices. Although the meaning is formed through the process of interactions andnegotiations, the differential degree of power embedded within the structure andinstitutions held by various actors may not only influence but also change themeanings of the phenomenon. In other words, the change in meanings, and hence theactions, may be attributed to the higher level of negotiation powers held by some actorsrelative to others in the negotiation process (e.g. authority, political location, wealth,intellect, etc.) and to changes in the environmental set surrounding the actors (e.g. neweconomical discovery or innovation, etc.). Consider the audit firm: the managingpartner holds a position of formal authority over other firm personnel, has the power tohire and fire lower level staff, and dictates certain matters to them. Thus, lower levelstaff are put out of the realm of “negotiations” and will act accordingly to be in linewith expectations or take the exit route. Besides symbols, meanings and interactions,another basic concept in symbolic interactionism is self-reflexivity. The self is highlyactive and selective, having a major influence on its environment and itself. Languageand ability to interpret symbols enables individuals to see themselves from theperspective of another and the content of self-concepts reflects the content andorganisation of society.

Symbolic interactionism has been applied in management accounting research.Rosenberg et al. (1982) used a combination of participants’ own stories and observationto understand the constructed roles and work attitudes of qualified accountants in theUK local authorities that moved from the finance (mainstream) department to socialservices (new segment) department. They found that those who moved to the newsegment have a newly shaped role and reciprocal impact on control procedures as wellas on other employees in the new segment. Tomkins and Colville (1984) usedobservations and interviews in investigating how different conditions lead to differentindividuals’ perceptions and attitudes on the public image of an accountant in twoorganisations, i.e. police force and social services department. They found thataccountants are often referred to as a “policeman” who controls money spending andholds individuals responsible for their actions through an established control system.Nahapiet (1988) studied the resource allocation process within an area of the UK’sNational Health Service by combining the insights of interpretive theorising withunderstanding the organisation and its operations as a whole. She paid particularattention to language and other symbols for expressive purposes and concluded thatthe new accounting both shaped and was in turn shaped by organisational reality (i.e.reflexive relationship between accounting and organisational processes). Rosenberg(1989) conducted interviews with selected treasurers in district boroughs andnon-metropolitan country councils, and attended meetings with the authority’s chiefofficers to study the negotiating mechanism of resource allocation between politiciansand professionals. It was found that power differences between the two parties affectthe budget-setting process and that the power of treasurers was unrelated to thecommitment either to corporate planning or to the chief officers. Roberts (1989) studiedthe relationship between managers and subordinates within an organisational contextwhere corporate targets increased competitiveness in managers. Based on a series ofobservations and repeated interviews with one subordinate, the study revealed how a

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manager’s explicit goals and a subordinate’s personal ambition may be damaging tothe relationship.

Unlike most previous studies that adopted symbolic interactionism in investigatingthe interactive meanings within an organisational context, we extend the theory to alsoinvestigate the interactive meaning within a country context. Cohen et al. (1992) arguethat both cultural values and socio-economic conditions dominant in a particularenvironment will affect perceptions and behaviour. They use Hofstede’s (1984) fourdimensions in addressing cultural values and two factors in the socio-economicenvironment, i.e. level of development of the profession and availability of economicresources, in their theoretical framework. Gendron et al. (2006) focus on thecommitment that practitioners manifest towards auditor independence. They foundaccountants in Canada to be receptive to regulation as a control mechanism,suggesting some reservation in self-applying ethical standards without regulatorycoercion. They further found type of accountants and audit firm as well as age, impacton commitments to independence. Drawing on Geertz’s (1973) approach to culturewhere meanings are simultaneously reflected in the personal (individual) and thepublic (collective) domains, Kosmala (2007) shows how the construct of auditorindependence is influenced by cultural particularities and individual interpretations ofmore general notions of independence, such as ideas of individual freedom, andpolitical and economic liberalism, as well as economic reality.

Similarly, in this study, we envisaged the notion of auditor independence to bearticulated within the set of characteristics that reflect a particular social reality. At thecountry or macro level, factors such as the political and socio-economic structures andideational realm of culture such as societal values and norms, philosophy, religiousbeliefs, and ethical principles, would set the boundaries within which actors interactand develop their actions accordingly. Within an organisation or at the meso level,interactions within an audit team and between auditors and their superiors may beaffected by the organisational culture. At the personal or micro level, self-reflexivitywill aid individuals in interpreting symbols and meanings and to see themselves fromthe perspective of others. These factors are anticipated to impact on the interpretationof the local meanings of independence. Figure 1 presents our conceptual framework.

Research methodAs stated earlier, CSSI is an appropriate research methodology to adopt in studyinghow auditors construct the meaning of independence in their daily rituals. Inconducting research based on the CSSI interpretive approach, the symbolicinteractionist must adhere to the following principles:

. study the behaviour, the range and variety of symbols and meanings that areshared, communicated and manipulated through the interactions of variousmembers;

. an individual’s symbols and conceptions of self must be linked with the socialcircles, groups and relationships that furnish him/her with those symbols andconceptions;

. the actor’s definition of the situation, his/her perception and interpretation ofreality and their relations to behaviour need to be discovered and interpreted; and

. the behaviour setting of interaction and observation must be recorded.

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Thus, methodologically, a combination of personal professional experience, documentanalysis, participant observation and interviews is deemed appropriate to provide therichest possible data for the purpose of this study. Research was conducted at twoaudit firms[8], one with international links and the other local. Table I outlines someimportant features of each firm.

Data collectionTo familiarise ourselves with the country context and issues related to the concept ofauditor independence, we collected secondary data comprising various mass mediatexts (newspapers, magazines, etc.), academic books, journals and research reports, aswell as archive data from various governmental and private agencies. We reviewed thevarious documents to equip ourselves with background knowledge that would enableus to conduct the interviews more meaningfully. Based on readings and backgroundknowledge gained, as well as experience with the cultural environment, we constructed

Figure 1.Conceptual framework

Audit Firm 1 Audit Firm 2

No. of partnersSaudis 2 2Foreigners 0 5Total 2 7No. of staffSaudis 15 95Foreigners 25 200Total 40 295No. of branches 2 3Market share (%) 10 23Audit services (%) 5 7Non-audit services (%) 5 16

Table I.Features of audit firms

observed

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an interview protocol consisting of a list of broad topics with a few direct questions (seethe Appendix). The first part consists of questions to elicit the interviewees’ responseson the meanings of auditor independence drawn from local rules and code of ethics. Wethen asked questions that would lead us to make sense of some of the social constructsof the independence concept.

A total of 12 days were spent in the two audit firms (six days in each firm). Thisinvolved not only conducting formal interviews with 12 auditors at various levels butalso having informal conversation and observing auditors both at the workplace aswell as on field assignment. Not all aspects observed (e.g. auditor-client interactions)are reported in this paper as we have limited our scope to only understanding theirnotion of independence and AI in every day life.

As mentioned earlier, formal interviews with 12 auditors at different seniority levelswere conducted in two audit firms over a period of 12 days. The interviews wereconducted in Arabic (with a mix of English), each lasting between 45 minutes to twohours, and were tape-recorded. Interviewees were asked to relate their views on theissues, provide explanations, and give examples, with minimal intervention from theinterviewer, so that the interviewees were able to express their own inner thoughts intheir own words regarding the notion of auditor independence, i.e. how they sociallyconstruct the meaning of AI in everyday life. Interviewees were then asked questionsrelated to the wider contextual ideas of political and socio-economic independence andsocietal values. The interview tapes were transcribed in Arabic as soon as possibleafter the interview while the conversation was still fresh in the mind of the researcher.The transcripts were then translated into English (on average, 15-20 pages and4,000-8,000 words). In transcribing and translating the Arabic text, an attempt wasmade to keep to the style of the rhetoric, thus showing all imprecision, ambiguities andinconsistencies, and also not to impose any interpretation of the texts at this stage.

Participant observation is a vital tool in studying the social world (Atkinson andHammersley, 1994), especially in interpreting the subjective meanings of language,behaviour and interactions of various groups in a particular society. Hence, participantobservation is directly applied in this study by observing and writing notes of theformal and informal social interactions that took place including having manyconversations with various individuals in the two audit firms. The researcher observedand interacted with practitioners at each audit firm, both on-site (especially duringworking hours and meal and prayer breaks) and off-site (during the engagementvisits), and noted the levels of social interactions, joint actions taken and degree ofpower distance between members in the team. The general ambiance in theorganisation and the ways members interact and present themselves to others outsidethe organisation, were also noted. The 12 days of observations produced 30 pages oftypewritten notes, mainly describing how independence was deciphered in everydaylife, with some anecdotes and quotations.

Data analysisSince we are interested in interpreting the various patterns of meaning of independencein a wider context, we used discourse analysis[9] as the mode in analysing thetranscribed texts, observation notes and documents. In interpreting the data, it is helpfulif the researcher has an understanding of the local “culture”[10] to make sense of therepertoire of information collected. One of the researchers has lived and worked as an

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auditor in the social environment, and this provided him with huge advantages inparticipating and observing the phenomenon as a member of that society as well as aprofessional group[11]. The “closeness and distance with the respondents bothemphatically and intellectually” helped the researcher to interpret the patterns ofmeanings both as an “insider” and an “outsider”, thus reducing personal bias (Smircich,1983; Alvesson, 2002). Figure 2 presents a summary of the data analysis process.

We first read the interview transcripts to get the overall impression and bridged itwith the contextual data. We then scanned the transcripts to identify, code andcategorise the data to get a general pattern of the respondents’ perceptions on variousimplication issues. We gave every category and dimension numeric codes like 1.1, 3.4,etc. We next compiled sets of text units for each construct by distinguishing andcodifying the text units from every transcript. We also included qualitative labelsfor the analysis such as “strong-weak”, “high-low”, “satisfied-frustrated”,“hopeful-pessimistic,” etc. Once coding was completed, common themes were then

Figure 2.Data analysis process

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drawn and meanings given to the selected texts, based on local context and cognitivemaps of shared understandings. We then extracted core summaries based on readingsof the interpretive accounts. We further reflected upon these accounts for cross-validity(Alvesson and Skoldberg, 2000). Through the reflexive process, the data weresubstantially reduced for analysis.

From the coded texts and analysis of keywords in context (Berelson, 1952;Gottschalk and Gleser, 1969), we identified two dimensions of auditor independence(independence in fact and independence in appearance). In interpreting the patterns ofmeanings from a wide spectrum of reference points, we tried to incorporate the localinsights of environmental elements to map what auditor independence means in thispart of the world. From the analysis, we identified four dimensions of the generalnotion of independence (political-ideological independence, legal or de jureindependence, business and economic independence, religious independence andsocial independence). Table II presents a summary of our analysis and the constructs,themes and dimensions of independence.

DiscussionMacro or country constructs of AIThe political and socio-economic life in Saudi Arabia was transmuted following onemajor historical event – the discovery of oil, and consequently, development of close tieswith Western nations and the global capitalist system. The soar in oil price in the 1970ssaw the demise of the Islamic political principle of shura (consultation) and theimposition of the new “bin-Saud ideology” on its people. To maintain its status quo, theruling family undertook measures that included controlling freedom of expression,nationalising the media, and resettling of the different tribes in specific regions. Theruling family also consolidated its power by ensuring that all key ministries areadministered by their family members, with others being held by members of differenttribes selected by the King, and more recently, influential families (the bourgeois class).The dominance of the “bin-Saud ideology” is also reflected in the way the geographicallandscape (Saudi Arabia) and its people (Saudis) are addressed, implying that everythingbelongs to the ruling family, the Bin-Saud. People owe duties to the ruling family and thevarious forms of rights are granted only when the ruling family sees fit to do so. In suchan authoritarian regime, the rest of society is expected to succumb without resistance toits “official” set of justifications, meanings and symbols, and there is less freedom toexpress thoughts and views and to take necessary action (Pennock and Smith, 1965).From our analysis, we detected two different views regarding how the lack of politicaland ideological independence affects the construction of the meaning of AI. For instance,some respondents define independence simply as a technical term that is not influencedby the surrounding environment and one has to adapt to the autocratic milieu andmaximise benefits from it as expressed by the following respondent:

Listen, politics has nothing to do with our work. We are here to provide our expertise that willhelp the clients and the government and I cannot see how my independence will be affected.As long as everybody is happy, we should not care much about this idea of independence[agitated].

In contrast, some respondents still believe the notion of independence to be very muchimpacted by politics and mentioned how SOCPA, unlike the professional bodies in

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Table II.Summary of discourse

analysis and dimensionsof AI

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developed countries which are more independent, influential and powerful, became thetool in helping the government to achieve its political-economic agenda rather thanaddressing local needs. Hence, they believe in putting pressure for reform as mentionedby one of the respondents:

Here everything is down to politics and everything is secretive. Even SOCPA [SaudiOrganisation of Certified Public Accountant] is not independent . . . [of the government] weneed reform in the profession and this will not happen without change in the position of thegovernment. Until then, auditor independence will always be a big issue [frustrated].

The ruling family also exerts its power in the judicial and economic spheres of life. Itsclose ties with western nations and the desire to participate in the global capitalisteconomy saw an infiltration of western business values into the legal system as well asother socio-economic institutions. The Shari’ah Islami’iah (Islamic teachings) that wasonce the sole source of law governing the economy saw increasing encroachment ofsecularised (non-religious) laws known as nizam (Vogel, 1993)[12] being passed by theKing, who also has ultimate power in appointing and expelling the judges. In such anautocratic regime, it is common to find the legal institution being occupied by a smallbody of persons who dictate policies upon the people, leaving very little room for othergroups to engage in the negotiation process, as solutions flow from top to bottom(Pennock and Smith, 1965). It is widely recognised that auditing evolves based on thelegal environment within which it operates (Anderson et al., 1998), and this affectsjudges’ assessments on auditor liability, fraud, and auditor independence. From theinterviews, we detected some resistance to the mix of religious and non-religious lawsincluding the current auditing code introduced by SOCPA as “it does not reflect ourvalues,” “not suitable for local conditions,” and “does not address our needs.” Theresistance to the current auditing code can be further classified into two types:

(1) not suitable for local environment as the stock market is less developed, thelegal system is weak and lacked independence, and businesses are controlled by“powerful” families; and

(2) not reflecting Islamic values despite the state claiming to follow Shari’ah[13].

The lack of independence de jure also affects the implementation and adherence torules and regulations related to auditing, and consequently, the construction of themeaning of AI. Since the laws were not constructed out of social negotiation andthrough joint action due to differential degree of power, they often result in conflictingactions and the current laws do not provide protection for auditors (no liability laws)and the powerful groups in society always win, as mentioned by interviewees:

The rules here apply only on the weak party and the powerful party always get away as thejudge is on their side. So, maintaining independence here is down to your own ethical stand.When the auditor has no ethical value, even if you have 1,000 legislations, you will never beable to control the unethical behaviours. Worse still if you have 1,000 legislations but notimplementing them fairly . . . [laugh].

In the past, everyone including the government followed the Shari’ah in all aspects but nowShari’ah only applies to inheritance and marital affairs. Everything is now halal [permitted],even if it violates the Shari’ah, until a new nizam [secular law] is issued. Those with morepower can find loopholes to get away with all laws.

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The powerful groups in Saudi society refer to particularly the Royal family, theirextended families, and to a lesser degree those having close working relationship withthem as well as families from certain tribes. These groups owned most of thebusinesses in Saudi besides state shareholdings. The stock market was introduced tolure the huge sums of petrodollars amassed in Saudi hands to benefit foreigncapitalists, as well as a small group of local capitalist elites, rather than the widersociety. The close link between the ruling family and this small group creates anetwork of powerful individuals in society that auditors need to deal with. Thebusiness and economic independence enjoyed by the powerful capitalist elites affectsthe construction of the meaning of AI, as they often put pressure on auditors to act intheir interest, thereby disrespecting auditors’ professionalism. The following areexamples of quotes related to this aspect:

In our work, we often face dominant figures who want us to do something which is not right.They seriously put us in awkward situation between following their view or our professionalduty. When you refuse, they will tell others that we are not a good audit firm and othersbelieve them . . . they get a one-sided picture of us [frustrated].

Let me tell you this. Many businesses here are owned by a number of wealthy families. If theylike you, you will get to audit their multi-companies and if they hate you, you will lose morethan just the audit fees! This makes you dependent on them, so to maintain yourindependence, just eliminate the risk of being directly involved in their businesses [laugh].

To be honest with you, how can you expect me to maintain my independence when I have todeal with powerful clients? If I qualify the audit report, I will not only lose that client but alsorisk losing my other clients, especially if they are family business. Tell me what I should do?

From the quotes, it can be deduced that the lack of business and economicindependence resulting from unequal wealth distribution together with weak legalsystem, professional body and pressure group to protect the powerless groups insociety, often result in exasperating compromises on AI.

Religion and family dominate the life of Saudis. Islam, as a way of life, dictatespractically every act and moment in life (Patai, 1952) and recognises man not only ashomo oeconomicus (economic man), but also homo ethicus (ethical man) and homoreligiosus (religious man). However, there currently exist two groups in society. Wealthand exposure to western values have created an elitist group that is happy to adoptsecular lifestyle and abandon Islamic teachings. Incursion of western imperialism andsuppression of Islamic cultural identity caused the emergence of a group who wouldlike to see the return of the Islamic state (Islamists); one sub-group of this believe in“revolution” while another sub-group, which is the majority, believe in reforming thestatus quo. A low degree of harmonisation in the norms and values between and withingroups and lack of religious independence affects the construction of the meaning ofAI. Our analysis revealed tension between the two groups as the more powerful seculargroup disregarded the Islamist interpretation of independence in all spheres of lifeincluding business and the profession. Furthermore, as mentioned earlier, SOCPA getsfull backing from the government and secular group in society to achieve theirinternational political-economic agenda rather than responding to the local needs.

Family is the centre of community in Saudi society (Hamady, 1960). The individualis responsible for the wellbeing of his family, and his behaviour in various lifesituations is mainly an expression of his family patterns[14]. The less powerful

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members of the family often rely on the more powerful ones. Wasstah (mediation), i.e.seeking favourable decisions through one of the official’s favoured persons, cronyismand nepotism, are normal and dynamic forces in daily activities (Helms, 1981). Suchinterdependence caused Saudis to get used to being partial and subjective in assigningjobs, distributing wealth and other benefits, and even in making judgements. Wasstahand nepotism are virtues in Saudi culture (Kay, 1982), and it is shameful for theindividual Saudi to refuse to help when asked. The lack of social independence affectsthe construction of the meaning of AI, as auditors sometime need to adjust theirbehaviour to suit others due to family pressure.

In short, the various cultural factors discussed in this section reflect not only thewider notions of independence but also their impact on the construction of themeanings of AI. Through social interactions with elements in their macro environmentwhere differential degree of power in society is large making it difficult to take jointactions to bring about changes, auditors construct their meanings of AI accordingly.Besides social interactions at the macro level, interactions also occur at theorganisational level between auditors, and this affects their construction of themeaning of AI, as discussed next.

Meso or organisational constructs of AIWhen interviewees were asked to define AI, the definition given often relates to theconcept of “independence in appearance,” as in the following:

. . . avoiding situations that would cause others to question the auditor’s state ofindependence.

The code says that independence is not to have financial interest in the client, not to haveblood relationships with clients . . . [providing a whole list of safeguards in the ethical code].

From our analysis, organisational culture[15] has an impact on the interviewees’construction of the meaning of “independence in appearance,” and we identified twothemes to have the greatest influence: image management and level of commercialactivities. Through organisational social interactions or socialisation, members adoptthe values, norms, beliefs, and assumptions that will permit them to participate aseffective members of the organisation and to take joint actions to resolve problems. Italso implies that members may need to relinquish certain personal attitudes, beliefs,values and behaviours, and be left out of the realm of negotiations due to differentialdegree of power. A unitary cohesive organisational culture around core moral valuesmay be imposed by some organisations but less so in others. We observed interestingdifferences between the two audit firms in our study, especially in terms of their “workprotocols” in maintaining the image or reputation of being independent in theireveryday life.

In Audit Firm 1, the “independence” manual contains all documents (IFAC, AICPAand SOCPA) and internal memos from audit partners providing further explanation orcomments. All staff are required to sign a sheet acknowledging that they have seen andare aware of the latest independence issues, and to inform the office regularly of anychanges to their independence position with the client or any new situations that mayimpair the audit team’s independence. The audit partner makes the final decision onany issues brought up by the audit manager, even sometimes on issues that seemtrivial. For instance, the researcher was with the audit team at a client’s premise and

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there was a year-end party. The audit team was invited, as there was plenty of food,and in Saudi culture, it is considered rude to refuse invitations. The audit managerimmediately called the audit partner and was told by the partner to establish whetherthe party was planned before knowing the date of the visit or after, but clearly statedthat he would prefer the team not to join the party. The audit team did not attend theparty and had lunch elsewhere. The researcher also noticed that the dress code for allstaff is the traditional “thoub” (white long dress with head gear), all stationery does nothave the company’s name or logo, and none of the staff are allowed to carry businesscards. When the researcher asked why such dress code is implemented, the reply was“to reflect our cultural identity and not to appear different from the rest of society.” Inshort, practitioners in Audit Firm 1 seldom take joint actions in making decisions,differential degree of power is obvious in this firm, and their social interactions is verymuch influenced by local culture. The audit partners adhere strictly to local values andcannot tolerate even trivial situations that they think may harm their independenceimage, and this sometimes frustrates some junior staff that have not yet been fullyacculturated with the work ethos in the organisation.

On the other hand, in Audit Firm 2, the “independence” manual consists ofdocuments required by IFAC and AICPA, and there was a separate manual labelled“SOCPA”. When the researcher asked one of the staff why the SOCPA’s code of ethicswas not included in the independence manual, he remarked:

What is in the SOCPA’s code of ethics can be found in IFAC and AICPA, they are justtranslation [sarcastic smile].

The researcher noticed that all staff in Audit Firm 2 are in business suits, they areallowed to carry and distribute their business card, and all stationery has thecompany’s name and logo. Audit managers are encouraged to make suggestions ofpotential services that can be offered before the audit partners visit the clients. They(audit managers) are given flexibility to assess situations related to independence, andonly cases that cannot be resolved will be brought to the attention of audit partnerswho will assess the situation and often make decisions based on pragmatism. Forinstance, an audit manager told the researcher of a case where he was asked by anaudit client to assess the acquisition value of a company which had used the services ofthe audit firm, and he was the one who audited the target company. He raised the issuewith the audit partner, who then explained the conflict of interest situation to themanagers of the two companies. Both managers insisted on the service of the auditorand, eventually, the audit firm provided due diligence service despite the impairment ofindependence. In general, social interactions in Audit Firm 2 does not adhere strictly tolocal norms, staff can take joint actions to resolve issues and make decisions, anddegree of power distance is less within the organisation. In other words, the approachto image management of independence in appearance in Audit Firm 2 is moreaccommodating.

Besides differences in image management, the level and variety of commercialactivities in the organisation affects the meaning of independence in appearance.Interviewees in both audit firms understand the need to “distance” themselves fromsituations that may cause others to suspect their objectivity, and some intervieweesmentioned that the safeguards in the ethical code serve as a useful checklist inmaintaining independence in appearance. However, some interviewees acknowledged

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the problems related to the increasing shift from accountancy’s traditionaljurisdictions, i.e. financial accounting services and auditing, to consultancy, asexplained by one of the audit partners in Audit Firm 2:

Maintaining independence is getting difficult these days; if you offer audit services, you areexpected to distance yourself, but if you offer consultancy services, you need to work closelyin order to give the best advice. So, you need to trade-off between independence and fees fromnon-audit services.

In other words, the wider the range of lucrative business activities offered by the auditfirm, the more difficult it is for the firm to maintain independence, as remarked by oneof the audit partners in Audit Firm 1:

Everyone tries to pinch clients, they charge low audit fees to get higher income from the morelucrative consultancy services, they don’t care about independence, they want to make money. . . Wallahi [swearing in God’s name], I’ve seen all their tactics . . . you need to have a strategyto protect your firm’s independence reputation [serious and frustrated].

Although the meaning of independence in appearance is associated with maintainingthe organisational independence image, auditors also need to interpret their actionsbased on their personal values, and this is discussed next.

Micro or personal constructs of AISelf-reflexivity is an important element in enabling individuals, through their socialinteractions, to interpret language and symbols to build an opinion or perception of aparticular concept such as AI. Our analysis suggests that an individual’sself-reflexivity (self-reflection, self-awareness at a moment in time, andcommunicative flexibility) develops not only through own intuitions, but alsothrough organisational and social configurations. When interviewees were asked whatAI means, our analysis of the various responses revealed two important themesassociated with the dimension “independence in fact”: ethical reasoning and reputation.We found auditors working in Audit Firm 1 using rhetoric such as follows:

Independence in auditing is to work without any pressure from anyone and not to link thequality of your work with the amount of fees. You do your best, because you fear Allah [God].

[Independence] is to be adl [just] when carrying out your duties . . . not to think of your owninterest and to stand firmly against any pressure [recite verse from Qur’an ].

It is about being honest with yourself and not afraid to voice your disagreement even if thismeans losing clients.

The above rhetoric suggests a slight contrast to the Anglo-American meaning ofindependence as “an attitude of mind”, as they emphasised religious rather thangeneral morality judgment. The meaning of AI for interviewees from this group iscommonly expressed using words such as “fear of Allah”, “justice”, “honesty”, “firm”,“not afraid of losing clients”, and citing verses from Qur’an and Hadiths (sayings of theprophet Muhammad), etc. The rhetoric seemed to be ingrained in all staff who shared asimilar world view with one of the audit partners, who has built a reputation forhimself as an “honourable man” with strong religious convictions. Staff expressedcontentment of working in the firm because they share a similar worldview with the

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founding audit partner and, in fact, is proud to be associated with the audit firm, asexpressed by one of the interviewees:

Our audit partner is well known for his reputation as someone trustworthy and he is alsoaware of Shari’ah [Islamic teaching] . . . he is our role model . . . the final goal is to producequality work and fear Allah, not money. Alhamdulillah [thank God] our audit firm hassucceeded in establishing quality name and I am proud of this. That is why we are asked tohandle many receivership and inheritance cases.

In other words, through self-reflexivity, auditors in this firm construct the meaning ofindependence in fact through collective moral/religious and emotional reasoning, to bein line with the worldview of the audit partners.

On the other hand, those working in Audit Firm 2 relate AI mainly to integrity,competency and efficiency, and often make reference to the “professional code” and“interpretation of situations” when describing AI:

It [AI] is free to give opinion based on what you think is right depending on the situation youfaced [pause] and the code of ethics serve as guidance.

[Independence] is to follow the rules in the code.

The above examples suggest two frames of mind exist among auditors in SaudiArabia: those who use personal judgement in interpreting the code based on theirreligious conviction or other form of moral principles and those who adhere to what isdictated in the codes (rule-based). Self-reflexivity for most individuals in Audit Firm 1is based on religious interpretation while those in Audit Firm 2 seemed to be associatedmore towards adhering to the code and exercising mindfulness of the firm’sinterpretations of “ethical and unethical” behaviour. We further understood from someinterviewees in Audit Firm 2 that they are expected to consider “consequences” and“potential damages” and to “exercise economic rationality” when making decisions, asmentioned by one of the interviewees:

None of this rule works if it means the firm will be losing money.

We also found individual reputation to be less important than firm’s reputation, andthe “self world view” is less significant in Audit Firm 2 compared to Audit Firm 1.

ConclusionsThis paper provides insights and interpretations of the meaning of AI in the context ofan oil-rich autocratic state with an ideology straddling liberal market capitalism andShari’ah, which has not been explored in previous studies. The insights andinterpretations are drawn from document analysis, observations and interviews withauditors at two audit firms, one with international affiliation and the other is local.

Our contextual analysis at the macro or country level indicates the meanings of theconcept of AI to a large extent are being associated with the various culturaldimensions. In Saudi Arabia, all affairs are controlled by the ruling family and most ofits citizens do not enjoy freedom of expression and their human rights are oftenviolated. Corruption is also high. The lack of political and ideological independencecreated a culture of fear, frustration and helplessness among its citizens who do notendorse such a regime. In such an environment, professionalism and societal needs arenot respected and efforts to change the status quo by the marginalised group in society

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are almost impossible. Similarly, lack of legal independence leads some auditors toconstrue the meaning of AI to be “doing what is considered best for both parties andthat it would be foolish not to take advantage of any loopholes in the regulation,” whileothers still believe in “resisting and putting pressure for reform” to maintainindependence and socio-economic justice. The business and economic independenceenjoyed by a small group of dominant personalities in society impact on theconstruction of the meaning of AI, as the individual auditor are often forced tosuccumb to the pressures and demands of the powerful elitist group to stay inbusiness. Dependence on powerful family conglomerates for business together withweak professional body to support auditors result in some auditors feeling frustratedand helpless unless they have strong willpower and self-control and not afraid of losingpotentially lucrative business. Similarly, the lack of religious independence inconducting business activities based on Shari’ah is frustrating for some auditors. Inthe same vein, lack of social independence meant auditors need to deal with pressuresof wasstah and nepotism in maintaining AI.

At the meso or organisational level, the meaning of independence in appearance islargely influenced by the organisational culture of the audit firm. In one audit firm, wefound the organisational culture to be more conservative, with high degree of powerdistance, and AI is maintained through a cohesive socialisation process around anumber of rigid core values, often based on religious convictions. On the other hand,the organisational culture of the second audit firm is more flexible and pragmatic withless degree of power differentiation, and AI is interpreted based on the context of thecomplexity of the situation often using economic rationality. At the personal level,independence in fact is often related to personal reputation and understanding of thelocal culture and religious norms rather than the name of the audit firm and generalethics.

Understanding the nature of the broad symbolic realities helps us to understandwhy there exist some resistance to the Anglo-American concept of AI among someauditors and the need for adaptation of such concept to be in line with religion andneeds of wider Saudi society. Table III presents a summary of the differences inAnglo-American and Saudi Arabian context and the effect on the meanings of AI.

From the various interpretations of the construction of the meanings of AI in SaudiArabia, it can be deduced that the Anglo-American concept of AI is appreciated bylocal capitalists and their foreign collaborators to maximise their interests. However, itis perceived as undesirable by the majority in society who locate religion as the focalpoint when performing their duties, including the lived meanings of AI. This createdtension between two dominant groups in society – the “Islamists” and the seculars or“liberals”. In short, AI is not merely a technical concept, but also a cultural concept andfor it to be effective in the context of Saudi Arabia, the following need to be addressed:freedom of expression, adoption of Islamic ethical values, reflection of societal needs,tackling corruption, having competent judges and having a more independent andinfluential professional body.

One limitation of our paper is that we focused only in understanding theconstruction of the meanings of AI based on interactions at the macro, meso and microlevels and did not distinguish how different social, religious, cultural, firm andpersonal factors affect perceptions of AI when faced with specific situations of conflict.Hence, it would be interesting for future study to explore this aspect.

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Table III.Summary of differencesin Anglo-American and

Saudi context and effecton meanings of AI

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239

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Notes

1. For instance, the founder of Arthur Andersen was known to have gained reputation oftrustworthiness by refusing to endorse some companies’ distorted financial statements(Squires et al., 2003; Toffler and Reingold, 2003).

2. This is largely attributed to high commercialism activities, especially with regard to therange of management advisory services, including almost any service that could generaterevenues (Wyatt, 2004).

3. There has been a shift in focus of research in this area but the positivist approach remainedas the dominant research method. In the 1980s and 1990s, the focus was on exploring theperceptions of interested parties on various auditor-client relationships. Following manycorporate scandals in late 1990s and early 2000s and lose of confidence in the integrity ofauditors, research concentrated on one aspect of auditor-client relationship, namely,management advisory services or non-audit services.

4. The Arabian Gulf states refer to Saudi Arabia, Kuwait, Bahrain, United Arab Emirates,Oman and Qatar.

5. The interpretive line of thought is also known as the Kantian/Fichtean approach (Laughlin,1995).

6. According to the 2007 Corruption Index, Saudi Arabia was ranked at 79th place, followed byKuwait (60), Oman (53), Bahrain (46), UAE (34) and Qatar (32) (www.infoplease.com/ipa/A0781359.html).

7. Symbolic interactionism consists of three approaches: Goffman (Dramaturgical), Kuhn (IowaSchool) and Blumer (Chicago School). The dramaturgical approach narrowly focuses onhuman behaviour and ignores other wider factors that may affect their lives. The IowaSchool is attracted by positivist research methods and tend to operationalise humanbehaviour. The Chicago School pays more attention on how meanings are constructed basedon interactions between people and their environment.

8. We are grateful to these two large audit firms that gave one of the researchers theopportunity to conduct the research.

9. Discourse analysis is viewed as “a system of texts that brings objects into being” (Hardy,2001, p. 26).

10. The concept of culture for the purpose of this paper refers to social, political and other factorsthat influence individuals’ behaviour.

11. CSSI sceptics often question the reliability in the interpretation of meanings by theinteractionist i.e. emic or etic. One of the authors was born in that culture and worked as anauditor for several years before moving to Britain ten years ago. This facilitates betterunderstanding of the pattern of meanings, as the researcher is “both emphatically andintellectually distant from and close to the subject” (Alvesson, 2002, p. 131).

12. According to Vogel (1993), the Shari’ah judiciary code is based on microcosmicinterpretation (i.e. appraising the case against the divine command of revealed texts),while the commercial law is substantially based on macrocosmic interpretation (i.e.sanctions not of individual conscience but of a world-existing institution or collectivity, suchas in judicial precedent or a jury as commonly found in the West).

13. Those who hold this view based their argument on the Quranic verse: “If any do fail to judgeby what Allah hath revealed, they are wrong-doers” (Al-Ma’ida, 5:45)

14. Lipsky (1959, p. 45) succinctly describes the typical Saudi Arabian family as follows:“Allsocial relations in Saudi Arabia are indirectly if not directly tied to family considerations andthe family is the fundamental and essential repository of every individual’s personal identity. . . In practice, family obligations take the precedence over all others.”

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15. Organisational culture has been recognised as one of the determinants of how people behave,more or less ethically, in an organisation (Sinclair, 1993).

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Power, M. (1997), The Audit Society: Rituals of Verification, Oxford University Press, Oxford.

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Appendix. Interview guidePersonal backgroundAge, qualification, nationality, experience, position.

General issues. Description of the concept of AI.. Importance of AI.. Specific examples where there may have been problems with AI?

AI issues: auditor-client relationship. Effect of expressing a qualified opinion.. Client’s understanding of AI.. Importance to client for auditors to be independent.

AI issues: regulationsGeneral attitude towards regulations/professional guidelines:

. awareness of auditing standards and ethical code;

. compliance and satisfaction of current auditing standards;

. feelings on current ethical code;

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. adherence to ethical codes; and

. particular areas of concern.

AI issues: personal independence. level of professionalism and competence;. personal vs societal interest; and. religious/moral vs. economic rationality, etc.

AI issues: political, socioeconomic and cultural valuesImpact of political ideology and legal system on AI:

. meaning of being a Saudi; and

. functioning of legal system, etc.

Impact of socioeconomic institution on AI:. characteristics of business environment;. change in economic ideology; and. regulatory bodies, etc.

Impact of societal values on AI:. power distance; and. collectivism, etc.

Corresponding authorMohammad Hudaib can be contacted at: mhudaib@essex.ac.uk

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